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Long After Fall, Countrywide’s Mozilo Defended His Legacy

By Ben Protess February 17, 2011 4:20 pmFebruary 17, 2011 4:20 pm

More than two years after Countrywide Financial nearly collapsed under the weight of souring subprime home loans, Angelo R. Mozilo passionately defended the mortgage lender that he founded before a government panel.

“Countrywide was one of the greatest companies in the history of this country,” Mr. Mozilo told Congressional examiners in September, more than two years after Bank of America bought the firm during the throes of the financial crisis.

That bold declaration was one of many made by Mr. Mozilo in an hourlong interview with the Financial Crisis Inquiry Commission. The private testimony, released recently by the government panel responsible for rooting out the causes of the crisis, depicts an emboldened former chief executive, defiant in the face of criticism that his company fed the mortgage bubble. Mr. Mozilo told the commission he was “proud of what we accomplished.”

Regulators have taken a different view of Countrywide’s legacy. In October 2010, Mr. Mozilo agreed to pay $22.5 million to settle federal charges that he misled investors about Countrywide’s risky loan portfolio.

The settlement was the largest penalty levied by the Securities and Exchange Commission against a senior executive of a public company. As part of the deal, Mr. Mozilo, who did not admit or deny wrongdoing, also agreed to forfeit $45 million in “ill-gotten gains.”

“Mozilo’s record penalty is the fitting outcome for a corporate executive who deliberately disregarded his duties to investors by concealing what he saw from inside the executive suite — a looming disaster in which Countrywide was buckling under the weight of increasing risky mortgage underwriting, mounting defaults and delinquencies, and a deteriorating business model,” Robert Khuzami, the S.E.C. enforcement director, said on Oct. 15.

Three weeks earlier, Mr. Mozilo was trumpeting his record. In the interview with commission examiners, he compared Countrywide to Berkshire Hathaway, the conglomerate run by Warren E. Buffett. He told the examiners that Countrywide’s stock grew “25,000 percent over 25 years — a much better performance than Warren Buffett at Berkshire Hathaway. This is documented.”

He is right, to a point. From 1982 to August 2007, Countrywide’s stock price gained nearly 25,000 percent, according to the research firm Thomson Reuters. Berkshire’s investors experienced similarly strong gains over the same period.

But Mr. Mozilo failed to acknowledge what came next for shareholders. Countrywide plummeted more than 90 percent, to around $4, in February 2008. At the nudging of government officials, Bank of America bought the lender for $4 billion, or roughly $4.25 a share, in July 2008.

Mr. Mozilo lauded the deal, telling the commission that the sale “did not cost the taxpayers a dime” and saved more than 50,000 jobs.

Bank of America, however, is still paying for the acquisition. The firm recently paid more than $2.5 billion to buy back troubled Countrywide mortgages from Fannie Mae and Freddie Mac, the government-controlled housing finance companies. Repurchase claims by private investors are still outstanding.

Mr. Mozilo and his business partner, David Loeb, who died in 2003, started Countrywide in 1969 with $500,000. Within a few decades, the company had transformed itself from a conservative home lender based in New York to the largest mortgage lender in the United States. As of 2006, Countrywide had 800 consumer branches, 54,000 employees and about $200 billion in assets.

The company’s ascent began in the early 1990s, soon after government data revealed that lenders were disproportionately rejecting minority borrowers for home loans. Countrywide, seeing an untapped market, moved to offer more loans in low-income and minority communities. Mr. Mozilo described the shift as a “long, uphill battle.”

“When I first brought the loans into the office, they said: ‘You’re nuts, you’re crazy, don’t do this. There’s a reason why we’re rejecting these people,’ ” Mr. Mozilo told the commission. The loan officers, he said, “had very static, inflexible guidelines.”

So he put the staff through “sensitivity training” and hired more black and Hispanic employees. Countrywide soon started approving one loan for every two applications reviewed, according to Mr. Mozilo. Previously, it had been approving one loan for every four applications. The new loans “did perform,” Mr. Mozilo said.

But that performance did not last. In 2006, Mr. Mozilo described some of the company’s riskier loans as “poison,” according to internal Countrywide e-mails released by the S.E.C. in 2009. “In all my years in the business, I have never seen a more toxic” product, Mr. Mozilo wrote in one e-mail.

Still, as he saw it, Countrywide was helping to break down the racial and economic barriers to homeownership. This approach “went a long way to avoiding a serious social problem down the line,” Mr. Mozilo, the son of a butcher from the Bronx, said in testimony to the commission.

“We wanted to make a difference,” he said, claiming that Countrywide had helped create 250,000 jobs and put 25 million people in homes.

“This is an accomplishment of which he is rightfully proud,” Mr. Mozilo’s lawyer, David Siegel, a partner at Irell & Manella in Los Angeles, said in an e-mail on Wednesday. Mr. Siegel said the rapid expansion of credit in the last two decades “was a mission promoted by our government, including by both Republican and Democratic administrations, because it was the right thing to do and smart for our country.”

Mr. Mozilo, in the final minutes of his commission testimony, made a similar assertion, saying Countrywide “was one of the most admired companies in America, financial or otherwise,” and claiming that it “probably made more difference in society, in the integrity of our society, than any company in the history of America.”